Investors and traders have been extremely nervous watching the markets recently and wondering if we are headed for a market crash. From the beginning of the year to the end of October, the S&P 500 Index is only up a little over one percent. You would think that this was a mild year, but after investors put down their bottle of Pepto, they will tell you it has been a wild ride. The average swing between highs and lows has been 10.8%.

chart

So, the big question accompanying the recent drop in price is whether this is just a simple correction or the start of a bear market? Before I declare either, let’s look at what the markets are telling us. After all, the key to where the markets are likely to go is within the market itself. Economic reports and company data are delayed data. What gives us a glimpse into the future and clues us in to the onset of a market crash is the price action on the chart itself.

Looking to the S&P 500 index, the monthly chart is not telling us to panic. I am using the RSI as a momentum indicator and the 13-period exponential moving average to assist with the trend identification. On the monthly chart, the 13 EMA will show you the approximate yearly trend. Notice how when prices closed below the 13 EMA, the index made a lower low in price before resuming the overall uptrend. This does not suggest a bear market but would warn of weakness and the potential for that bear market to begin. In October, the index DID NOT close below the EMA.

INX

Looking at the RSI, we see a major momentum warning. When prices are making higher highs in an uptrend, they should be doing it with increased momentum. On the chart above, the RSI is showing the higher highs in September and October were made with less bullish momentum. This is a signal called negative divergence and is very bearish, a good indicator that a market crash may be nearing. . Since the divergence occurred while the indicator was reading above 60, no new lows should be made before another rally.

So, the S&P is in a correction and should be able to make some more rallies before we get a bear market. Last week I tweeted, (@traderbdub) that the S&P futures bounced from a daily demand and will seek out a supply zone at 2767 before selling off. The next daily demand is 2510 on the index.

CHART

Now we will have to watch this price movement carefully. If prices simply break the February 2018 lows, then the weekly uptrend that has been in place since the 2016 election will have been broken. However, if price makes a lower high before making the lower low, that would be the signal of the start of a bear market.

CHART

For now, the S&P is only showing a correction in price. But that could easily change. What is scary is how close the current chart looks like the typical map of a price bubble.

CHART

If you were wondering about the other major market indexes, the Dow Jones and the Nasdaq Composite indexes are exhibiting the same patterns and price action as the S&P 500.

CHART

So, for now, the markets are correcting but this is eerily close to signaling the start of the bear market and potential recession in the economy. Bear markets are not to be feared but rather they offer great opportunities to the educated and skillful traders and investors. To build the required skills to navigate a market crash, you need knowledge. You also need the experience to build skill. You gain this experience by practicing with the help of a mentor. Build your skill so you can take advantage of the market opportunities by joining Online Trading Academy today.

Read the original article here - Market Crash or Correction?


Learn to Trade Now

This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms

Education feed

Editors’ Picks

EUR/USD struggling to hold onto 1.10 as USD gains ground

EUR/USD is trading close to 1.10, as the US dollar gradually advances. Two White House advisers expressed contradicting accounts of US-Sino trade talks, causing confusion. Germany refrained from adding fiscal stimulus.

EUR/USD News

GBP/USD trades around 1.25 as EU pours cold water on Brexit hopes

GBP/USD is trading around 1.25, off the two-month highs of 1.2582 as EU officials cast doubts about the seriousness of the new UK proposals on Brexit. 

GBP/USD News

USD/JPY drops to one-week lows on trade war headlines

The USD/JPY fell during the American session following reports that the Montana Farm Bureau said China's delegation has canceled a planned trip to view US agriculture.

USD/JPY News

Editors’ Picks

EUR/USD struggling to hold onto 1.10 as USD gains ground

EUR/USD is trading close to 1.10, as the US dollar gradually advances. Two White House advisers expressed contradicting accounts of US-Sino trade talks, causing confusion. Germany refrained from adding fiscal stimulus.

EUR/USD News

GBP/USD trades around 1.25 as EU pours cold water on Brexit hopes

GBP/USD is trading around 1.25, off the two-month highs of 1.2582 as EU officials cast doubts about the seriousness of the new UK proposals on Brexit. 

GBP/USD News

USD/JPY drops to one-week lows on trade war headlines

The USD/JPY fell during the American session following reports that the Montana Farm Bureau said China's delegation has canceled a planned trip to view US agriculture.

USD/JPY News

Top 3 price prediction Bitcoin, Ripple, Ethereum: Ethereum points to the Moon as Bitcoin takes a break

ETH/USD exceeds $220 and is bidding to lead the market. Bitcoin sets a bear trap and recaptures $10,000. XRP stalls between technical levels and fails to consolidate $0.30.

Read more

Gold climbs further beyond $1500 mark, lacks follow-through

Gold edged higher for the second consecutive session on Friday, albeit remained well within a familiar trading range held over the past two weeks or so.

Gold News

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology